Can you withdraw money from your 401(k) while you are still employed? Not everyone should; not everyone can. However, if you can, it may mean that you can effectively implement part of your retirement income plan before you retire.

If your 401(k) plan permits it, you can take an in-service withdrawal and redirect some of your 401(k) funds into another investment vehicle that offers you income guarantees.

The reasons why. A non-hardship withdrawal can provide you with early access to a portion of your retirement assets, freeing you to manage them as you wish. If the mix of funds in your 401(k) have taken a big hit lately, you might be wondering how some of those assets would do in other kinds of investments, especially those with less risk exposure.

This very question has led some people to withdraw assets from qualified retirement plans such as 401(k)s and direct them into qualified or non-qualified annuities that they own independently. A non-qualified annuity contract may be structured to provide tax-deferred growth for retirement, or immediate income. You aren’t even required to take distributions at age 70½ (though your contributions aren’t tax deductible.) The annuity may be fixed or variable. Another nice feature: non-qualified annuities do not have annual contribution limits. (There are annual contribution limits on qualified annuities held within IRAs and employer-sponsored retirement plans.)1

Today, you can find popular annuity investments that will allow you to take advantage of stock market gains while protecting your principal against stock market losses. Many of them offer the option of guaranteed lifelong income payments. Some of these annuities may let you allocate assets across a mix of stocks, bonds and funds through subaccounts.2

With features like these, you may be interested in these kinds of investments if you are approaching retirement age.

The 72(t) strategy to avoid the early withdrawal penalty. If you are still working and pull money out of your 401(k) before age 59½ without rolling it to another qualified plan, you will almost certainly pay a 10% early withdrawal penalty plus income taxes on the money you take out.3 But you might be able to make early withdrawals with the help of IRS Rule 72(t).

Rule 72(t), based on life expectancy, lets you schedule fixed income withdrawals for five years or until you reach 59-1/2, whichever is longer.4 It lets you receive fixed, equal payments according to IRS calculations.

First things first: make sure you can do this. Talk with your employee benefits officer at work, and see that the Summary Plan Description (SPD) permits non-hardship withdrawals. Talk with your financial or tax advisor to make sure it is an appropriate move for you given your overall financial plan. If you know you’ll need more retirement income, there can be real merit to reinvesting early withdrawals from a 401(k) in vehicles that generate it.

Securities & investment advisory services offered through NEXT Financial Group, Inc. Member FINRA/SIPC. These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.

Contacts

Securities and investment advisory services offered through NEXT Financial Group, Inc., member FINRA/SIPC. To view NEXT Financial Group’s privacy policy and other important information, visit the "Customers" section of www.nextfinancial.com. Although Capital Consulting Group & TwinCitiesRetirement.com are affiliated, they & CLS Investments are not affiliated with NEXT Financial Group, Inc. Investment products and services available only to residents of: Minnesota, Alaska, Arizona, California, Colorado, Florida, Kentucky, Missouri, Nebraska, North Dakota, Ohio, South Carolina, South Dakota, Texas, Tennessee, and Wisconsin. NEXT Financial Group, Inc. does not offer tax or legal advice. Please consult your tax or legal professional before taking any action.

There is no guarantee that a diversified portfolio will outperform a non-diversified portfolio in any given market environment. Diversification cannot assure a profit or protect against a loss in any given market environment. An investment in a portfolio strategy is subject to investment risk, including possible loss of principal. The investment strategy of the funds used may include investments in foreign securities, small & medium sized companies, as well as funds that concentrate in one specific asset class, all of which may increase the risk and volatility of the funds. Consider the investment objectives, risks, charges and expenses of the portfolio carefully before investing. This information should not be construed as an offer to sell or a solicitation or an offer to buy any security.

The information presented here does not consider your particular investment objectives or financial situation nor does it make personalized recommendations. This information should not be construed as an offer to sell or a solicitation of an offer to buy any security. The investment strategies may not be suitable for you. Individuals should contact their own tax professionals and attorneys to help answer questions about specific situations or needs prior to taking any action based on this information. We believe the information provided is reliable, but do not guarantee its accuracy, timeliness, or completeness. Any opinions expressed herein are subject to change without notice.

Past performance is not a guarantee of future results.

* In order to claim your complimentary cruise, you must be an existing client of Capital Consulting Group, or you must have been referred by an existing client. Limit 1 ticket per survey response per year. Limit 2 tickets per household per year. Must be 30 years of age.